In what some see as a penny-wise pound-foolish move, Jay Penske, the new owner of Variety (who also owns Deadline, Movieline, TVLine and Bonnie Fuller's Hollywood Life) has let go of Variety's 11-year-old pre-Oscar institution, Jeffrey Katzenberg's Night Before fundraiser benefiting the Motion Picture and Television Fund, which raises about $5 million a year.

Nonetheless the star-jammed gala will go forward on February 23 at the Beverly Hills Hotel, announced THR with the following unusual headline: "Hollywood Reporter Replaces Variety as 'Night Before' Oscars Fundraiser Sponsor."

What's wrong with Penske saving himself $400,000? Variety had committed to the cost of the presenting sponsorship, but after the sale Penske met with Katzenberg and opted not to go through with it. Variety reassessed its allocation of sponsorships and while they chose not to support the annual MPTF fundraiser this year, they will continue to support MPTF going forward in other ways.

So THR snapped it up. "All these years Variety had it exclusively–when it comes available you take advantage of it," says THR publisher Lynne Segall. THR came up with the money to take over the high-profile Oscar Eve event sponsored by top brands L'Oreal (Lancome, Kiehl's), Target, HP, McDonald's and Fiat. Segall and THR editrix Janice Min recognize the huge PR value–not only with inside-Hollywood players but with the luxury-brand advertisers they covet– of hosting this event.

Even during relative award-season plenty, Variety yet again looks like a skinnier version of its former robust cock-of-the-walk self. Point is, Penske's sending a signal about the future direction of Variety as he moves into creating a new-model lean mean trade machine. And he's letting THR chase the Hollywood glitz and glamour–at whatever cost. While it may be smart to choose a different route from THR, Penske may not have foreseen how this move would play. It's a PR disaster. He's in effect telling Hollywood that Variety can't afford the cost of its signature annual gala, and may even have cash flow issues. (Word is some vendors are waiting months to get paid.) "You could pay this off over a year with one $50,000 ad a month," suggests one ex-Variety staffer.

Of course the proof will be in how Penske turns his new publishing brands around. Which may take time. After his $25-million purchase, Penske's first round of layoffs in November did not hit Variety, but staffers are anxiously awaiting what comes next. Besides replacing publisher Brian Gott with tech-savvy Michelle Sobrino Stearns, Penske has not made huge changes with his Variety team. He's most proud of Variety's post-Newtown Violence in Entertainment special issue, in which 50 Hollywood "thought leaders" weighed in on the topic. Tellingly, he was aiming for quality journalism–not advertising dollars.